FSA issues Retail Distribution Review consultation paper

New proposals out from the UK regulator seek to rebuild trust in the retail investment market

LONDON - The UK Financial Services Authority (FSA) has published proposals to build people's trust and confidence in the retail investment market. In a consultation paper on its Retail Distribution Review (RDR), the authority sets out detailed proposals to implement the wide-ranging reforms proposed in November's feedback statement.

The FSA hopes the changes, which will take effect from the end of 2012, will improve outcomes for savers and investors by enhancing the quality of advice they receive, and prepare both consumers and the industry for the future.

The authority is calling on all investment advisers to consider how they will adapt to these reforms. Although challenging, the RDR presents a significant opportunity for firms and individuals in the retail investment market to modernise practices, raise standards and improve the way they treat their customers.

In particular, the FSA is consulting on rules to provide greater clarity for consumers about the advice being offered and to redefine 'independence' - through distinguishing between 'independent advice' and 'restricted advice' (non-independent advice) services; and ensuring firms describing their advice as independent consider all products and providers that could meet a customer's needs (so consider all relevant options), free from any restrictions or bias, when making recommendations. It will also help to tackle the potential for adviser remuneration (commission) to bias advice - by requiring advisers to set their own charges in agreement with their clients ('adviser charging') before they identify suitable products for the customer; preventing product providers from offering pre-determined levels of commission and advisers recommending products that automatically pay them commission; and allowing the cost of advice to be taken from the product. It is also hoped the RDR will raise professional standards by requiring all investment advisers to be qualified to a new, higher level (equivalent to QCF - Qualifications and Credit Framework - Level 4), regarded as equivalent to the first year of a degree; introducing a code of ethics for advisers and enhancing standards for continuing professional development.

"The RDR is about regaining consumer trust and confidence in the retail investment market, building a more sustainable sector and making it easier for people to find their way around and get the help they need - this is more important now than ever before," says Jon Pain, FSA managing director of retail markets. "We have set out the specific changes we propose to make to implement our far-reaching package of measures. This is a call to action for the industry - all investment advisers need to consider how they will respond and implement these wide-ranging and challenging improvements by the 2012 deadline."

Comments are invited until October 30, 2009.

Click here for the CP

Click here for the feedback statement